Joe Tsai on Investing for the Future


Alibaba Group reported its September 2017 quarterly earnings today. Alibaba Executive Vice Chairman Joe Tsai kicked off the company’s analyst call with his perspective on the quarter. The transcript follows:

This quarter our revenues grew 61%. It is the highest ever revenue growth rate for Alibaba since our IPO.

We are demonstrating that Alibaba can deliver high growth at scale. Let me elaborate on how we did it.

Investing for the Future

On the last earnings call, I emphasized how important it was to invest for the future. Several years ago, we invested heavily in the key factors that drive today’s growth. Let me offer a few specific examples:

  • We invested in product innovation, with new mobile features and content that drive our massive and growing user base in mobile commerce
  • We invested in technology to enable us to accomplish algorithmic-driven personalization, which provides great customer experience, while delivering increasing uplift in monetization
  • We invested in category expansion resulting in our gaining incremental share in strategic categories, such as consumer electronics and FMCG
  • We invested in logistics and cloud computing so that our infrastructure of commerce delivers customer satisfaction at scale

Our impressive results demonstrate the importance of investing for the long run. Sometimes long-term investment cuts into short-term profitability. This is where we feel adamant that responsible managers of businesses must choose long-term benefits over short-term results.

When we invest for the long term, we not only see financial results come through. We also build lasting franchise value in the business.

The manifestation of franchise value includes:

  • a growing and more-engaged user base;
  • a robust technology platform that can handle scale;
  • customer loyalty and mind share that is unrivaled; and
  • an ecosystem of active participants that contribute to the vibrancy of the Alibaba Economy.

It is this franchise value that underpins the sustainability, as well as the capacity for future value creation of our business.

The Long View of China

I want to close by talking about the lens through which I look at China’s economic development. Critics of China make the mistake of taking snapshots and interpreting events in isolation. People forget to look at China’s development in the context of a long period of time – over 20-30 years.

The fact is, in the history of the world, there has never been an economy with a massive population of 1.3 billion that grew in such a sustained fashion over such a long period of time.

In the 18 years since Alibaba was founded, China’s per capita GDP grew by a compounded annual rate of 14%. By comparison the per capita GDP of the United States grew 3% compounded during the same period.

We all understand the magic of compounding. When you compound at a 14% rate over 18 years, which is the life of Alibaba, the average Chinese citizen is 10 times better off today than in 1999, with per capita GDP growing from $870 to $8,100.

While economically, China is still a developing country, China has some of the world’s most modern infrastructure. And it is the most-advanced mobile economy in the world.

The Internet has helped China leapfrog ahead of the more developed countries. The Internet turned the lack of legacy infrastructure – in the areas of retail, telecoms, and banking – into an advantage.

Today, China’s per capita GDP is still only one-seventh the per capita GDP of the United States.

Based on the track record of sustained income growth over the past years, as well as on the backbone of a modern Internet infrastructure and productivity gains from technology, I am very optimistic that China will continue to experience real income growth for years to come.

This will translate into a rising middle class characterized by ever-increasing and higher-quality consumption, and this long-term secular trend bodes well for Alibaba.